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Wage Subsidy – are you wondering what to do?
May 4th, 2020
Chris Lynch, Managing
We would like to bring some light over the subsidy criteria and rules as there had been some confusion.
Here are four out of many questions I have been asked:
- What is the situation in relation to the wages subsidy if your revenue is down 10 or 15% in month one?
Can you apply in month two if your revenue is down 32%?
- Is the revenue decline calculated on a monthly basis or over a 3-month period?
- If you have claimed early and it turns out that you are only 29% down do you have to pay it all back?
As stated on the Work and Income New Zealand website, the majority of New Zealand employers who have been adversely affected by COVID-19 are eligible to apply for the COVID-19 wage subsidy, provided that the business has experienced a minimum 30% decline in actual or predicted revenue over the period of a month, when compared with the same month last year, and that decline is related to COVID-19. The revenue flow for individual employers will differ, both within and between industries.
- Revenue should be calculated by comparing one month’s revenue against the same month of the previous year using the same measurement basis. For example, April 2020 vs April 2019.
- Applications for the COVID-19 wage subsidy include a declaration that, amongst other things, the employer meets the eligibility criteria. The level of exposure to COVID-19 related economic challenges is likely to differ from one business to another, for example, those with clients in the retail, tourism, forestry, trades or hospitality sector are likely to be more severely impacted than those with clients operating essential services.
What does a 30% decline in revenue mean?
This means a business has experienced a 30% decline in actual revenue or predicted revenue and that decline is related to COVID-19. The business must experience this decline over a period of a month, anytime between January 2020 and 9 June 2020.
What is the definition of Revenue?
Revenue means the total amount of money a business has earned from its normal business activities, before expenses are deducted.
Determining a decline in revenue
To determine a decline in revenue, the business must compare one month’s revenue against the same month the previous year (e.g. February 2020 compared with February 2019). The revenue of the month in the affected period must be at least 30% less than it was in the month it was compared against.
If the employer has been in operation for less than one year, and therefore cannot demonstrate a 30% decline in revenue on a year to year basis, they are able to use a previous month as the best estimation to demonstrate the loss (i.e. comparing February 2020 to March 2020).
What are active steps to mitigate the impact of COVID-19?
A business must take active steps to mitigate the financial impact of COVID-19 on their business. This could include:
drawing from your cash reserves (as appropriate)
- making an insurance claim
- proactively engaging with your bank.
the criteria for the subsidy is no longer met
- the subsidy is not used to retain and pay employees
- insurance (i.e. business continuity insurance) has been received for any costs covered by the subsidy
- The information in the application for the subsidy is incorrect or incomplete.
…then, some or all the COVID-19 Wage Subsidy must be returned
If you have claimed early and it turns out that you are only 29% down (in the month of your choice) you will need to repay the subsidy in full because you have not achieved the threshold of 30% or, in other words:
- If you predicted your revenue would be down by more than 30% in that month and your revenue was down up to 29.9 % in that month you will need to repay the subsidy.
- Make sure you are taking active steps to mitigate the impact of COVID-19 – listed above before applying for the subsidy. An auditor will check that
- Yes, you can apply in month #2 if your revenue is down 30% or more. Actual or Predicted Revenue decline is only calculated on a monthly basis not a three-month period.
You can find more information here or if you are still unclear, please give us a call.
Chris Lynch, CA
Managing Director, Lynch & Associates Limited
Get in touch by Email or Phone: +64 9 366 6008
Chris is the founding Director of Lynch & Associates Limited.
He qualified as a CA in 1973 and is a full member of the College of NZICA now merged with CAANZ. His expertise is in the areas of tax, accounting, business development, forecasting, and auditing. He has a clear focus on adding value to his clients lives and businesses and seeing the people behind the numbers.
Chris experience includes working as a CFO and company secretary for some of New Zealand’s leading companies before starting his own CA firm in 1999. In his previous roles Chris has worked in the wool, dairy, engineering FCG, banking and investment banking and stock broking industries.
Today he uses this vast experience to assist his clients add value to their businesses and personal lives.